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Level 1

# inside/outside basis and sale of property I'm confused

I'm a 20% limited partner in an apartment building. On my K-1 it shows ending capital account as negative 257,000 and my share of liabilities as 395,000. The general partner is talking about selling the property for 4,200,000. I'm trying to understand what my tax liability will be? Is it 840,000 -(257000)=1,097,000 or ? Does the debt have any impact? I think I have to pay regular tax on depreciation recapture and capital gains on the rest. Will the final k-1 tell me how much depreciation has been taken or do I have to figure that out somehow.

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2 Replies
Level 15

## inside/outside basis and sale of property I'm confused

The general partner is talking about selling the property for 4,200,000. I'm trying to understand what my tax liability will be? Is it 840,000 -(257000)=1,097,000 or ?

that's because the gain is the selling price less selling expense less the tax basis of the property sold. so if it was \$1000K the gain would only be \$3200k. your 20% share would be \$640K. the k-1 will report your share of the gain and there will be a line (currently 9c) with the section1250 depreciation. This also assumes your inside and outside tax basis are the same. Normally that's the case. However, inheriting your share or buying your share from another partner could mean they are different. it's your outside basis that matters.

to give you some idea

your beginning of the year tax basis

-257K deficit capital + you share of liabilities of 395K = 138K

tax basis will go up by your share of the gain on sale

tax basis will go up or down based on operations and any other items of income or expense

tax basis will go down by the reduction in your share of liabilities at the beginning of year

this is your tax basis (see above caveat about inside/outside basis) before distributions.

any distributions in excess of this would be treated as additional long-term gain (assuming you held your interest for mor than 1 year). if less you'll have a capital loss for the remaining tax basis.

you are unlikely to receive \$840,000. as part of the sale besides the sales expenses the liabilities would need to be paid off.

Level 1

## inside/outside basis and sale of property I'm confused

thank you for your response. I understand that there will be sales expenses so we will get something less than 4.2M. I don't have it in front of me but I think we bought it for 1.5M although we have done a refinance and taken cash out as well as depreciation. So my tax basis is -257K+395K=138K. Lets say we net sales price is 4.1M we pay off the loan 1.975M= 2.125M left over. My share would be 425k. Assuming there is no income or expense this year. I understand the k-1 will show me everything, but I'm trying to plan for my tax liability.